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Why Kenya is eyeing Sh22bn Samurai loan
Japan, as a sovereign, ranked as Kenya’s third largest bilateral lender at the end of 2024 with Sh79.5 billion outstanding as of December 2024, behind only China and France, whose outstanding debt was Sh692.6 billion and Sh90.2 billion, respectively.
Kenya has tapped Sh21.8 billion ($169.42 million) in Samurai financing from Japan, the first such facility, whose proceeds will be directed towards local motor vehicle assembly and energy sectors.
Samurai financing refers to debt denominated in the Japanese Yen and subject to Japanese regulations.
Kenya has long floated the idea of floating the Samurai financing or a Samurai bond to diversify its external lending away from US dollar instruments.
The US dollar has remained the dominant currency of choice in foreign borrowing, with the proportion of external debt denominated in US dollars standing at 62 percent as of December last year.
The proportion of external borrowing denominated in Euro, Yen, Sterling Pound, and Yuan, meanwhile, stood at a lower 24.8 percent, 5.2 percent, 2.5 percent, and 5.3 percent, respectively, while other currencies made up just 0.2 percent of outstanding foreign loans.
The National Treasury has previously teased the issuance of debt in Yen to not only meet project financing requirements but also refinance Kenya’s Eurobond instruments with proceeds of a Samurai bond.
The new disbursement from Japan, however, is not a Samurai bond as it was not raised from the market but is instead aYen-denominated financing targeted at specific projects.
The agreement for the financing was signed by Foreign Affairs Cabinet Secretary Musalia Mudavadi and Nippon Export and Investment Insurance CEO Atsuo Kuroda at the ninth Tokyo International Conference on African Development (TICAD 9), which is being attended by President William Ruto.
“This facility will strengthen our local vehicle assembly and parts manufacturing industry while also addressing electricity transmission and distribution losses, currently standing at about 23 percent of our national output,” Mr Mudavadi said in an X post on Thursday.
Kenya had earlier in the week signed a statement of intent on Samurai financing at the ongoing conference in Yokohama.
The agreement marked Kenya’s entry into the Japanese capital markets, allowing it to issue a Samurai bond- a Yen-denominated debt instrument issued to Japanese investors.
President William Ruto described the move as a ‘leap forward’ in Kenya’s strategy of innovative resource mobilisation to fund national development and transformation.
“This engagement underscores our commitment to broadening financing options to accelerate priority projects that will shape Kenya’s economic future,” the President said.
Liabilities from a Samurai bond would sit under external commercial debt, as monies from the instrument would be sourced from private investors, including non-State Japanese banks.
Japan, as a sovereign, ranked as Kenya’s third largest bilateral lender at the end of last year with Sh79.5 billion outstanding as of December 2024, behind only China and France, whose outstanding debt was Sh692.6 billion and Sh90.2 billion, respectively.
Kenya has also considered issuing Shariah and Panda bonds, the first a Shariah-compliant bond issued on the global markets, and the second a Yuan-denominated instrument.
The consideration for non-dollar currency bonds reveals efforts by the government to mitigate foreign exchange pressures where the Japanese Yen or Chinese Yuan is seen as more stable in contrast to the US dollar or the British Pound.
“We need to diversify to other markets- the Chinese market with the Panda bond, the Japanese Market with the Samurai bond, and the Middle East with Wakala Sukuk bonds. All these diversified bond markets will support financing projects and programmes under the Bottom-Up Economic Transformation Agenda,” Ex-Treasury Cabinet Secretary Njuguna Ndung’u said previously.
